Strengthening Employment-Based Pensions in Japan
Pension Research Council Working Paper No. 2002-1
35 Pages Posted: 4 Mar 2002
Date Written: October 11, 2001
This paper investigates how the Japanese pension market for funded employment-based pensions is changing and how it might be strengthened in order to better serve one of the most rapidly aging populations in the world. Public and private pensions in Japan are estimated to hold around US$3 trillion, making that system the second largest globally after the United States. However unfavorable economic developments have cut sharply cut into asset values and the weak economy is undermining traditional lifetime employment contracts. The recent passage of new legislation permitting the establishment of defined contribution plans in Japan may provide new opportunities for employer-sponsored retirement plans. We begin by describing the Japanese pension system at the end of the 20th century, and then provide an overview and evaluation of the changes in the pension arena emerging from the 2001 legislation. We show that important design questions remain to be answered, if Japanese employment-based pensions are to be reformed and modernized. We also suggest what lessons might be gleaned from recent changes in pension plans in the United States.
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